Payrolls Rose 187,000 in August, Unemployment Rate Rises to 3.8%

How USDA may provide 2022 disaster aid

USDA daily export sales: 198,000 metric tons of soybeans to unknown destinations during the 2023-2024 marketing year.

The U.S. economy added 187,000 jobs in August, per the report from the Labor Department, indicating ongoing robustness in the job market despite the backdrop of increasing interest rates. Economists’ projections had anticipated a job gain of 170,000 for the same period. The unemployment rate stood at 3.8%, a slight rise from July’s 3.5% and slightly higher than the consensus forecast of 3.5% among economists surveyed by FactSet. Dow futures rallied 150 points after the August jobs report.

Families crossing the U.S. border illegally reached an all-time high in August, the Washington Post reports. Details below.

China freed up banks’ foreign exchange reserves to boost renminbi/yuan. The currency has fallen 5% against dollar this year as concerns about world’s second-largest economy mount. The move came hours after authorities announced fresh stimulus for the beleaguered property sector and unveiled plans to expand tax breaks for child and parental care and education.

Amid intense conflict, Ukrainian forces are engaging in a strategic effort to extend their breakthrough in the primary Russian defensive line in the southeastern region. They aim to capitalize on the initial openings they created earlier and expand their presence within this territory. A successful advancement through this main Russian line could enable Ukraine to deploy armored vehicles, disrupt Russian military operations, seize additional land, target crucial supply routes, and weaken Russia’s capacity to conduct warfare over a broader geographic area. This strategic maneuver holds the potential to significantly impact the ongoing conflict between the two nations. More in Russia & Ukraine section.

Copper futures, on an upward trend, recently surpassed the $3.8 mark, reaching their highest point since Aug. 7.

West Coast dockworkers ratify labor contract at major U.S. ports.

Cost of shipping grain from the Midwest to global markets is experiencing a sharp increase due to dwindling water levels on the Mississippi River.

The Philippines announced price ceilings for rice, as the rising cost of the national staple probably caused August inflation to accelerate for the first time in seven months.

NGFA supports CFTC changes to large trader reporting requirements.

How USDA will likely handle 2022 disaster aid. We try to answer the question we are receiving from a lot of readers. See Policy section.

USDA revised its farm income forecast, predicting a substantial decline of over 20% in farm income for 2023. Details below.

USDA revised its projections for U.S. ag trade in fiscal year (FY) 2023 and introduced its initial forecasts for FY 2024. More info below.

Starting today, the interest on federal student loans will begin accruing once again, ending the 0% interest rate that had been in place since March 2020 due to the pandemic.

Voluntary carbon markets have experienced their first contraction in at least seven years, with companies like Nestle and Gucci reducing purchases, and forest protection projects showing unmet emissions-saving promises. More in Energy & Climate Change section.

A federal judge dismissed a lawsuit brought by former Tyson Foods employees who were seeking bonus pay after being terminated for participating in a bet related to Covid-19 infections among workers at the company’s pork processing plant in Waterloo, Iowa. Details in Livestock section.

In a “Dear Colleague” letter (link) sent to Senate members, Majority Leader Chuck Schumer (D-N.Y.) has indicated his intention to hold House Republicans accountable for any potential government shutdown if they fail to pass spending legislation by the end of the month. More in Congress section.

Sen. Mitch McConnell (R-Ky.) received medical clearance to resume work following a recent episode of freezing.

Equities today: Asian stock markets were mixed and European stock markets mostly up in overnight trading. U.S. stock indexes are pointed to firmer openings. European stocks nudged higher after China unveiled more stimulus measures. In Asia, Japan +0.4%. Hong Kong closed. China +0.4%. India +0.9%. In Europe, at midday, London +0.6%. Paris +0.2%. Frankfurt flat.

U.S. equities yesterday: The Dow slumped 0.5%, about 168 points. The S&P 500 dipped 0.2% lower, while the tech-heavy Nasdaq climbed 0.1%. The S&P 500 and Nasdaq snapped five-month winning streaks, while the Dow posted its first monthly loss since May.

Agriculture markets yesterday:

• Corn: December corn futures fell 2 1/2 cents to $4.78 1/4 and nearer the session low.
• Soy complex: November soybeans fell 18 cents before settling at $13.68 3/4, near the session low. December meal futures fell $6.2 to $404, nearer the session low. December soyoil saw relative strength, though still closed 15 points lower at 62.48 cents.
• Wheat: December SRW wheat closed down 5 cents at $6.02 and hit a contract low. December HRW wheat fell 4 1/2 cents to $7.27 1/4 and hit a 21-month low. December spring wheat futures closed 12 cents lower at $7.67 1/2 and hit a contract low.
• Cotton: U.S. dollar strength seemed to undercut cotton futures Thursday, with most-active December futures dipping 6 points to 87.82 cents.
• Cattle: October live cattle futures rallied 77.5 cents before closing at $180.825, while August futures expired 92.5 cents higher at $179.725 at noon. October feeder futures rose 80 cents to $256.025. August feeder futures expired 95 cents lower at $249.10 at noon.
• Hogs: Futures gave back a substantial portion of Wednesday’s gains on Thursday. Nearby October tumbled $1.05 to $82.55.
  

Ag markets today: The new month kicked off with corrective price gains in the grain markets overnight, led by soybeans. As of 7:30 a.m. ET, corn futures were trading 4 to 5 cents higher, soybeans were 13 to 14 cents higher, winter wheat markets were 5 to 9 cents higher and spring wheat was mostly 1 to 5 cents higher. Front-month crude oil futures were nearly $1.00 higher and the U.S. dollar index was trading just below unchanged.

Market quotes of note:

• “Our core customers continue to tell us they feel financially constrained.” —Dollar General Chief Executive Jeff Owen, as the company’s shares fell to their lowest levels in years after the discount retailer cut its outlook.
  

In August 2023, the U.S. economy added 187,000 jobs, surpassing market expectations and marking an increase from the revised 157,000 jobs added in July. However, this is the third consecutive month where job gains remained below the 200,000 threshold, suggesting a gradual moderation in the strength of the labor market. This moderation is largely attributed to the Federal Reserve’s efforts to counter inflation by implementing significant interest rate hikes.

Notable sectors that contributed to job growth include healthcare (+71,000), leisure and hospitality (+40,000), social assistance (+26,000), and construction (+22,000). On the contrary, the transportation and warehousing sector experienced a loss of 34,000 jobs due to the bankruptcy of Yellow, a major trucking company, which left around 30,000 workers unemployed. Employment in the information sector remained relatively unchanged, with a decrease of 15,000 jobs. This decrease is largely attributed to the absence of employment for striking Hollywood actors, who are not counted as employed during this period.

The average hourly wage rose 0.2% on the month, below 0.3% forecasts. Annual wage growth of 4.3% was just below views for a steady 4.4%.

The unemployment rate was expected to hold steady at 3.5% but jumped to 3.8%.

Consumer spending in the U.S. played a pivotal role in driving economic growth as indicated by July’s data. Despite rising interest rates, the strength of the U.S. economy persisted. The Commerce Department reported that household spending, a key driver of economic expansion, surged by a robust 0.8% in July — marking the quickest increase since January. This heightened spending was observed across various sectors, including groceries, recreational items, vehicles, and services such as housing, dining, and insurance. Adjusted for inflation, consumer spending still saw a notable rise of 0.6% in July. These figures underscore the resilience of the U.S. economy and its continued growth momentum.

USDA revised its farm income forecast, predicting a substantial decline of over 20% in farm income for 2023. The latest projection anticipates net farm income to be $141.3 billion for the year, representing a decrease of $41.7 billion (22.8%) compared to 2022, without adjusting for inflation. This decline is even greater than what was previously estimated in the agency’s February forecast. The drop follows a significant increase of $42.9 billion (30.7%) from 2021 to 2022, reaching a record high of $183.0 billion.

When accounting for inflation, the net farm income forecast for 2023 reveals an even larger decrease of $48.0 billion (25.4%) in comparison to 2022. Despite these declines, USDA points out that the projected net farm income for 2023 is still 22.6% above the 20-year average of $115.2 billion in inflation-adjusted terms.

The forecast predicts a 4.3% reduction in cash receipts from agricultural commodity sales for 2023 compared to the previous year, while direct government payments are projected to decline by 19%. Lower cash receipts from corn and soybeans are expected to decrease revenues by $11.2 billion (4%), and animal product receipts, driven primarily by milk, broilers, eggs, and hogs, are anticipated to decrease by $11.9 billion (4.6%).

On the expense side, USDA anticipates a rise of $29.5 billion (6.9%) in 2023 compared to the prior year. The next farm income forecast is scheduled for release on November 30.

USDA revised its projections for U.S. ag trade in fiscal year (FY) 2023 and introduced its initial forecasts for FY 2024. USDA lowered its expectations for both ag exports and imports in FY 2023. The forecast now predicts ag exports of $177.5 billion, down by $3.5 billion from the May forecast, while ag imports are expected to reach $196.5 billion, a reduction of $1.5 billion from the previous estimate. The decline in export projections is attributed to decreases in corn, wheat, and tree nut exports, while the lower import figure is attributed to easing import prices throughout the year.

For FY 2024, USDA foresees a further decline in ag exports by $5.5 billion compared to FY 2023, reaching $172.0 billion. This reduction is primarily due to lower exports of soybeans, soybean meal, and dairy products. On the ag import side, USDA projects imports to rise to $199.5 billion in FY 2024, an increase of $3.0 billion from the levels forecast for FY 2023. This rise is driven by higher expected imports of horticultural and livestock products, along with stabilizing global prices.

Based on these projections, USDA anticipates an agricultural trade deficit of $19.0 billion for FY 2023, up from the $17.0 billion forecasted in May. The preliminary forecast for FY 2024 indicates an ag trade deficit of $27.5 billion.

Market perspectives:

• Outside markets: The U.S. dollar index was near steady. Nymex crude oil futures prices are higher and trading around $84.75 a barrel. The benchmark U.S. Treasury 10-year note is around 4.114%. Crude oil prices were higher, with US crude around $84.00 per barrel and Brent around $87.20 per barrel. Gold and silver futures were higher, with gold around $1,973 per troy ounce and silver around $25.01 per troy ounce.

• Copper futures, on an upward trend, recently surpassed the $3.8 mark, reaching their highest point since Aug. 7. This increase has been fueled by positive market reactions to Beijing’s efforts to support the property market in China. These efforts include measures such as reducing the mortgage rate for first-time homebuyers and making adjustments to down payment ratios in certain cities. Looking beyond China, the global demand for copper is expected to receive a boost from two main factors. Firstly, the electric vehicle market is projected to drive increased copper consumption due to its use in EV components. Secondly, the rapidly growing Indian economy is also anticipated to contribute to higher copper demand on a global scale.

• West Coast dockworkers ratify labor contract at major U.S. ports. Members of the International Longshore and Warehouse Union voted Thursday to approve a new six-year labor contract covering cargo handling operations at 29 ports up and down the West Coast.

• Cost of shipping grain from the Midwest to global markets is experiencing a sharp increase due to dwindling water levels on the Mississippi River. This has resulted in elevated barge freight rates, and the forecast for below-average rainfall provides no relief, according to Bloomberg (link). As of Aug. 29, barge spot rates in St. Louis have surged by 49% compared to the previous week and 42% compared to the same time last year, reaching $23.34 per ton. This marks an 85% increase from the three-year average, based on USDA data. The Mississippi River plays a crucial role in transporting more than 45% of U.S. agricultural exports. Since June, water levels on the river have been decreasing, leading to restrictions on the amount of grain that can be carried on each barge. This has tightened the supply of available barges, as a greater number of them are needed to transport the same volume of grain. To manage this situation, transportation companies are being proactive by reducing draft levels on barges to mitigate the challenges caused by heavier loads during periods of low water levels.

• Philippines curbs rice prices. The Philippines announced price ceilings for rice, as the rising cost of the national staple probably caused August inflation to accelerate for the first time in seven months. President Ferdinand Marcos Jr. has approved a maximum price of 41 pesos ($0.72) a kg for regular-milled rice, below the 42 pesos to 55 pesos market rate. The maximum price for well-milled rice was set at 45 pesos a kg, below the range of 47 pesos to 56 pesos offered by retailers. The ceilings will stay until Marcos lifts them.

• Brazil bests U.S. for corn export crown. For over fifty years, the U.S. held a dominant position in the global corn market, supplying more of this crucial crop than any other nation to nourish livestock and produce processed foods worldwide. However, in the agricultural year ending on Aug. 31, the U.S. relinquished its status as the primary corn exporter to Brazil. Some observers say this shift might be a permanent one. According to USDA data, in the 2023 harvest year, the U.S. is expected to account for around 23% of global corn exports, significantly trailing Brazil’s nearly 32% share. Projections suggest that Brazil will maintain its lead even in the upcoming 2024 planting year starting on Sept. 1. This marks a significant departure from historical trends, with the U.S. only previously losing its top position for one year in 2013 due to a devastating drought.

• NGFA supports CFTC changes to large trader reporting requirements. The National Grain and Feed Association (NGFA) noted its endorsement for changes proposed by the Commodity Futures Trading Commission (CFTC) in relation to large trader reporting requirements. In their comments submitted to the CFTC, NGFA requested the agency to make improvements by publishing daily Commitments of Traders (COT) reports and reducing the time lag of three days between data collection and report publication. The CFTC had introduced revisions to the reporting rules for large trader positions in futures and options, with the aim of enhancing market surveillance and the accuracy of its weekly COT reports. These reports provide insights into open interest positions held by various market participants, aiding informed decision-making and risk management. The COT report, which is widely downloaded, serves as a crucial resource for market participants. The proposed changes in data reporting standards are anticipated to facilitate quicker and more frequent publication of COT reports. Ideally, NGFA suggested that CFTC should aim to release the COT report on the day following data collection, providing more timely and relevant information about open positions in the market.

• Ag trade: South Korea purchased 55,000 MT of corn expected to be sourced from South America or South Africa and tendered to buy up to another 69,000 MT of optional origin corn.

• NWS weather outlook: There is a Slight Risk of excessive rainfall over the parts of the Southwest/Great Basin on Friday/Saturday and Eastern Gulf Coast on Friday... ...There is a Marginal Risk of severe thunderstorms over parts of the Southwest/Great Basin on Friday... ...There is an Elevated Risk of fire weather over parts of the Central Plains on Friday

Items in Pro Farmer’s First Thing Today include:

• Grains rebound to start September
• Big jumps expected in monthly soy crush, corn-for-ethanol use
• China to take more actions to revive property sector
• Steady/lower cash cattle trade
• Hog futures discounts continue to narrow

— Vladimir Putin moved to seize control of Yevgeny Prigozhin’s operations, people familiar said. A Defense Ministry-affiliated contractor will assume charge of Wagner’s Central African Republic operations, and all of its covert overseas network will come under Russian military command.

— Ukraine’s President, Volodymyr Zelensky, announced development of a new long-range weapon capable of striking targets up to around 435 miles away. Meanwhile, tensions between Ukraine and Russia have escalated, with the Kremlin accusing Ukraine of conducting aerial attacks on the western Russian region of Pskov. In response, Russia launched air attacks on multiple locations within Ukraine over the past 24 hours.

— How USDA will likely handle 2022 disaster aid. Sources signal USDA plans to offer farmers a choice between the failed Phase 2 approach OR the Phase I approach BUT using a “progressive factor,” meaning that the more losses you suffered, the more you are dinged by the factor. Normally, USDA just applies a uniform factor on all benefits, so everyone shares equally in the cut to fit within budget. But USDA appears to be upending this.

Of note: USDA has $3.7 billion to work with. Farm Bureau estimated losses at $20 billion or so, with about $11 billion covered by crop insurance, etc. Thus, you can see what a uniform factor would look like. But if you do a “progressive factor,” then that means the first portion of the payment is high, maybe 100%, but steadily declines.

— Starting today, the interest on federal student loans will begin accruing once again, ending the 0% interest rate that had been in place since March 2020 due to the pandemic. Interest rates on these loans, which are fixed and differ based on the type of loan, will revert to their previous levels before the freeze. Borrowers, however, won’t need to take immediate action, as their first monthly payment will indicate when changes come into effect. For most individuals, their payments are expected to restart sometime in October, though the exact due date may vary. Generally, borrowers should anticipate their monthly payment to be consistent with what it was before the pandemic pause. Except for those who made voluntary payments or made alterations to their account — such as consolidating loans — federal student loans remained effectively paused during this period.

— China moved to support the yuan by cutting banks’ foreign currency reserve requirements. China lowered the mandatory foreign currency deposit reserves that banks must maintain to support the value of its currency, the yuan. Starting from Sept. 15, financial institutions will be required to hold only 4% of their foreign currency deposits in reserve, a decrease from the existing 6% level. This move aims to strengthen the yuan’s value. However, the offshore yuan initially showed improvement in value but later retraced some of those gains.

— In August, the Caixin manufacturing Purchasing Managers’ Index (PMI) experienced an unexpected increase, reaching a reading of 51. This positive shift indicates that the manufacturing sector has moved into expansionary territory again, marking the highest reading since February. This private survey’s results follow the official manufacturing measure released a day earlier, which revealed that the contraction in manufacturing activity was easing due to improvements in new orders and production.

— Voluntary carbon markets have experienced their first contraction in at least seven years, with companies like Nestle and Gucci reducing purchases, and forest protection projects showing unmet emissions-saving promises. Forest conservation is crucial for meeting global temperature increase limits and combating climate change. This decline also has implications for developing nations that depend on funding from multinational companies to support climate mitigation projects. Kenya, for example, aims to establish itself as a carbon offset trading hub.

Facts and figures. Demand for carbon credits is projected to decrease in 2023, with credit usage falling 6% in H1, marking the first dip in seven years, as per BloombergNEF data. Ecosystem Marketplace’s data indicates an 8% drop for the same period. Quality concerns of carbon credit schemes and negative studies have led some companies to pause purchases, favoring higher-quality credits. This change comes after years of growth in the voluntary carbon market, triggered by shareholder pressure for net-zero policies. The market was valued at around $2 billion in 2021, with forecasts by Shell and Boston Consulting Group anticipating a potential $10 billion to $40 billion market by 2030. However, challenges in inspiring confidence and demonstrating real emissions reductions have persisted. Consequently, carbon offset prices through the Xpansiv market CBL, the world’s largest spot carbon exchange, have slid over the last 18-20 months, with reductions of over 80%. Link to Reuters report for more.

— A federal judge dismissed a lawsuit brought by former Tyson Foods employees who were seeking bonus pay after being terminated for participating in a bet related to Covid-19 infections among workers at the company’s pork processing plant in Waterloo, Iowa. The lawsuit was filed by seven managers who were fired in December 2020 following an internal investigation that confirmed their involvement in the wager, which drew negative attention to Tyson’s treatment of its employees during the pandemic. The former employees contended that they were entitled to around $300,000 in incentive payments linked to specific production targets outlined in Tyson’s Annual Incentive Program (AIP).

U.S. District Court Judge Leonard Strand, the chief judge of the Northern District of Iowa, disagreed with the former employees and dismissed the case. He emphasized that both Tyson’s AIP policy and the statements in the AIP were unequivocal in stating that the company was not contractually obligated to provide AIP bonus payments for the employees’ work in 2020. He also noted that these bonus payments do not qualify as “wages” that can be reclaimed under Iowa law. As a result, the lawsuit seeking bonus pay recovery was rejected by the court.

— Schumer reveals spending strategy. In a “Dear Colleague” letter (link) sent to Senate members, Majority Leader Chuck Schumer (D-N.Y.) has indicated his intention to hold House Republicans accountable for any potential government shutdown if they fail to pass spending legislation by the end of the month. Schumer’s letter aims to create a division between House and Senate Republicans. He offers praise for Senate Appropriations Chairwoman Patty Murray (D-Wash.) and ranking Republican Susan Collins (R-Maine), despite his usual disagreements with Collins. He highlights that the Senate has successfully passed all 12 appropriations bills out of committee with bipartisan support. This is meant to contrast with the House, where House Speaker Kevin McCarthy (R-Calif.) has diverged from his spending caps agreement with President Joe Biden and is pursuing partisan proposals that are unlikely to become law. The House passed spending levels below the agreed-upon amount, a move that will not be replicated in the Senate.

— Sen. Mitch McConnell (R-Ky.) received medical clearance to resume work following a recent episode of freezing. The minority leader from Kentucky presented a letter from Congress’ attending physician, which explained that experiencing occasional lightheadedness during the recovery from a concussion, suffered by McConnell in March, is not uncommon. Despite this assurance, certain Republicans remain concerned about McConnell’s health and his ability to fulfill his role effectively.

— In August, a significant surge of migrant families crossing the U.S./Mexico border was observed, based on preliminary data obtained by the Washington Post (link). This influx has disrupted the Biden administration’s efforts to deter parents from entering the country illegally with their children, potentially bringing immigration back into focus during an ongoing presidential race. The U.S. Border Patrol apprehended over 91,000 migrants who crossed the border as part of family groups in August. This number surpasses the previous one-month record of 84,486 set in May 2019 during the Trump administration. Notably, families constituted the largest demographic group crossing the border in August, overtaking single adults for the first time since President Biden assumed office.

Of note: The data reveals a consistent increase in border apprehensions for two consecutive months, with a rise of more than 30 percent each month. This follows a notable decline in May and June, attributed to new restrictions and entry opportunities introduced by the Biden administration. The Border Patrol made over 177,000 arrests along the Mexico border in August, compared to 132,652 in July and 99,539 in June.

— Cotton AWP rises. The Adjusted World Price (AWP) for cotton is at 71.56 cents per pound, effective today (Sept. 1), up from 69.06 cents per pound the prior week. USDA also announced that Special Import Quota #20 will be established Sept. 7 for 58,062 running bales of upland cotton, applying to supplies purchased not later than Dec. 5 and entered into the U.S. not later than March 4.

— Justice Clarence Thomas revealed he undertook three trips in the last year on a private jet belonging to billionaire Harlan Crowe. This disclosure comes after a period of heightened attention on the extensive connections between the two men and Thomas’ previous failure to disclose these connections. In his filing, Justice Thomas mentioned that he opted for noncommercial flights for security reasons, implying that he received advice to do so. The disclosure sheds light on these travel arrangements and their underlying circumstances.

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